Investing on a limited income can feel intimidating, especially when you’re juggling monthly expenses or relying on fixed income, such as disability benefits. But here’s the good news: It’s still possible to grow your wealth with the right approach.
Whether you’re just starting to think about the future or already making plans, this post will walk you through some simple ways to begin investing, even if money is tight.
Before we dive in, a quick disclaimer: I am not a licensed financial advisor, and this post is intended for informational purposes only. Always do your own research and consult a professional if you need personalized advice.
1. Start Small, But Start
The biggest barrier to investing for many people is thinking that you need a lot of money to get started. That’s simply not true.
Many investment platforms allow you to begin with as little as $5 or $10. These small amounts might not seem like much now, but they can snowball over time, especially if you’re investing consistently.
Consider setting aside even just a small percentage of your monthly income (even if it’s just $25 or $50). Over time, this will add up, and you’ll benefit from the power of compounding.
Ways to start small:
- Micro-investing apps: Apps like Acorns or Stash round up your everyday purchases and invest the spare change.
- Robo-advisors: Platforms like Betterment and Wealthfront offer low-fee, automated investment management. They can help you invest in diversified portfolios, even with a small amount of money.
- Dollar-cost averaging: This means investing a set amount regularly (e.g., $25 per month). This approach can reduce the impact of market volatility and keep you consistent in your investing.
2. Consider Low-Cost Index Funds or ETFs
One of the best ways to invest when you’re on a limited income is by choosing low-cost index funds or ETFs (Exchange Traded Funds).
These funds track the overall performance of the stock market or specific sectors, and they are often less expensive than picking individual stocks. Index funds and ETFs typically have low fees, which is important when you’re working with a smaller budget.
Why index funds and ETFs are a good choice:
- Diversification: These funds invest in a wide range of stocks, which helps spread risk.
- Low fees: Since they are passively managed (they track an index), they usually have lower management fees compared to actively managed funds.
- Accessibility: You don’t need a lot of money to invest in them. Many brokerages allow you to start with small amounts, and some even offer fractional shares, meaning you can invest in a fraction of a share of expensive stocks like Amazon or Google.
3. Take Advantage of Retirement Accounts
If you’re on a fixed income, it’s especially important to plan for the future—and retirement accounts like Roth IRAs or Traditional IRAs offer great opportunities for long-term growth with tax advantages.
While it can be hard to contribute a lot to retirement on a limited income, even small contributions can make a big difference. Some people on disability or with low incomes might even qualify for tax credits or deductions, depending on their situation. If you’re receiving government benefits, consider opening a Roth IRA. Contributions are made after tax, so you won’t pay taxes when you withdraw the money in retirement.
How to get started:
- Roth IRA: You can contribute up to $6,000 per year (or $7,000 if you’re over 50) as of 2023, but there are income limits for eligibility.
- Traditional IRA: Offers potential tax deductions for contributions, which can be helpful if you’re in a lower tax bracket.
- Employer-Sponsored 401(k): If you’re working part-time or have access to a 401(k) plan, see if your employer offers any match contributions. That’s free money for your retirement!
4. Look for Free or Low-Cost Resources to Learn
One of the best things you can do for your financial future is to educate yourself. Financial literacy is key, and luckily, there are a ton of free or low-cost resources available to help you learn about investing.
Resources to check out:
- Investopedia: Great for beginners, with easy-to-understand articles on all things investing.
- YouTube Channels: Channels like The Financial Diet or Graham Stephan offer practical investing advice and tips for beginners.
- Podcasts: There are tons of investing and personal finance podcasts that can help you make smarter decisions. Some options include BiggerPockets or The Dave Ramsey Show.
- Books: Look for beginner-friendly investing books like The Little Book of Common Sense Investing by John Bogle or Invested by Danielle and Phil Town.
5. Look into Social Security or Other Government Benefits
If you’re on disability or have a low income, you might qualify for government benefits that can help with your financial needs. In some cases, these benefits may include resources or programs specifically designed to help you build wealth.
For example:
- The Supplemental Nutrition Assistance Program (SNAP): While primarily for food, some state programs help provide other resources for financial planning.
- Medicaid Savings Programs: If you qualify for Medicaid, you may also qualify for programs that help with financial planning and saving for the future.
While these benefits are generally designed to cover your basic needs, it’s worth looking into whether they offer any opportunities for savings or financial support that could help you invest in the long term.
Final Thoughts
While investing on a limited income or while on disability might seem daunting, it’s important to remember that even small steps can lead to big results. Starting early, even with modest amounts, will help you take control of your financial future and work towards long-term stability.
You don’t have to be a financial expert or have a large income to start investing. By using accessible tools like micro-investing apps, choosing low-cost index funds, and taking advantage of tax-advantaged retirement accounts, you can begin to build wealth over time—even on a limited budget.
As always, I encourage you to do your own research and, if possible, consult a financial advisor to help guide your decisions. But remember: the first step is always the hardest, and once you’ve taken it, you’ll be on your way toward financial freedom, no matter your income.
Disclaimer: I am not a licensed financial advisor. This post is for informational purposes only. Please consult with a professional before making any major financial decisions.
